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Engagement, not divestment, key to dealing with climate change

May 22, 2015

Pension plans and institutional investors are being called on to divest from organizations that have significant exposure to climate change risks, in particular, fossil fuel companies.

Our first and foremost responsibility is to provide you, and future generations of teachers, with a secure pension. As an investor, climate change poses a risk to all of our assets and our ability to earn sufficient returns over the long-run.

But, the divestment of fossil fuel companies is not the answer to dealing with these risks. Rather, engagement is.

Talking to companies about our concerns can encourage them to make changes that reduce or eliminate greenhouse gas emissions and contribute to a more sustainable future.

Extreme weather and changes in weather patterns can physically damage our assets and their supply chains. Climate change also poses a regulatory risk to our portfolio companies. Stringent or abrupt carbon taxes and new cap and trade systems, for example, can have a negative impact on the valuation of a company.

"Some members have called for us to divest from fossil fuel companies to make a point," said Ron Mock, Teachers' President and CEO, during our 2015 annual meeting. "We believe we can be most effective by using our influence and engaging with companies and governments."

By maintaining our voice at the table, we are able to sit on boards in those cases where we have a majority stake, speak with management, and vote our shares. We also work with governments to shape policy to address the risks that climate change presents.

While we continue to influence policy makers and organizations in the fossil fuel and energy sector, we will also continue to invest in clean energy.

New clean energy technologies will not replace fossil fuels overnight. The transition is underway but will take some time. Regardless of the sector, we will evaluate each and every investment on whether or not they will help us to meet our responsibility to provide you with a secure pension.